Faṣlnāmah-i Pizhūhish-i Huqūq-i ̒Umūmī (Feb 2015)
Umbrella Clause in Bilateral Investment Treaties
Abstract
The Umbrella Clause has nearly become one of the most common rules of the mostinvestment treaties, which provides more protections for foreign investor. Providinga proper and true sense of this clause has become highly controversial issue ininternational investment law that has led many arbitral tribunals to adopt specificstance in this respect. Here, the fundamental point is whether the forum stipulated inthe bilateral investment treaty is competent to settle disputes, which are arisen frominvestment contract between host State and foreign investor, or not? If it so, then thenext question would be: what will be the effect of the determining the forum bystipulated dispute settlement clause in the contract. Does this clause turn contractclaims into the treaty claims? And what will be the impacts and limits of this clause?Answering to these questions, the arbitral tribunals have responded in two differentways. Some of them have interpreted the clause in a narrow sense; they havedistinguished sovereign from non-sovereign act of host State. According to theirpoint of view, the Umbrella Clause of BIT may be violated if the host State measure,in breaching its contractual obligation, is applied on the basis of its sovereignty. Incontrast, the other tribunals have interpreted this clause in a broad sense which theviolation of any contractual obligation of host State leads to a breach of this clauseand consequently the forum in the investment treaty is qualified to hear the dispute.It seems that the broad interpretation and second approach is more logical in theinterpretation of the clause; it is also more consistent with the purpose and historyof the emergence of this clause and makes it more efficient.
